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Energy Currents
A Blog by Enerdynamics

After a Lackluster Spring and Summer, Will Natural Gas Prices Stay This Low?

by Christina Nagy-McKenna, Enerdynamics Facilitator

The impact of the COVID-19 global pandemic has been multifold on the natural gas industry. In the first half of 2020 prices fell to record lows, demand dropped as gas-consuming industries stumbled, and drilling slowed as gas and oil price drops forced producers to shut-in wells. As businesses slowly resume operations, will natural gas prices increase in 2021? Can prices stay as low as they have been since the spring of 2020? To answer these questions, we must look at the factors that impact natural gas pricing the strongest: consumer demand, LNG exports, gas production, and underground storage.

U.S. natural gas spot prices have been on a downward slide since November 2019 due to a mild winter and the economic slowdown caused by COVID-19. The market hit a 25-year low in June 2020 as temperatures stayed mild into the summer. As seen below, industrial demand still lags 2019 levels, but it has been slowly increasing as companies across the country begin to resume normal operations. The power sector is also behind its 2019 numbers as the demand bump that was expected due to summer cooling loads of gas-fired power plants did not materialize until late in the season.

August brought soaring temperatures to the West Coast and soaring prices as well – SoCal Citygate prices traded as high as $13.26/MMBtu on Aug.17. Northern California Citygate prices stayed lower but crossed the $3/MMBtu level last week. Rolling blackouts and wildfires continued to test the California electric grid and bolster the need for more electric generation as the week progressed. Late summer heat well into September is normal for the state, which could help support higher gas prices in the region. Last week NYMEX futures prices rose accordingly for September 2020, October 2020, and for the 12-month strip from September 2020 to August 2021, which rose to $2.866/MMBtu.    

U.S. LNG exports have decreased in 2020 and are not expected to be a large contributor to demand in the near term, however exports are expected increase in 2021. Currently, Europe and Asia have lower than usual demand for natural gas due to COVID-19, and they have high storage inventories. The Energy Information Administration (EIA) estimates that 45 U.S. August export cargoes and 30 September export shipments have been canceled. Average July 2020 exports fell to 3.1Bcf/d, which is roughly the level of May 2018 exports. EIA expects 2021 exports should average close to 7.3Bcf/d, which would be a welcome increase. But whether this occurs will depend on the rebound, or lack thereof, of the global economy.

The impact of less production under normal conditions would be lower supply and thus an increase in price. However, as we have seen this year, gas prices have been relatively flat since the nationwide slowdown due to COVID-19. The other important factor for supply is gas storage. According to EIA, working gas inventory is 15% higher than the five-year average as of the end of July 2020. Assuming the current level of storage injections continue, gas storage levels will be higher than average at the beginning of the winter 2020-2021 season.


Based on the recent upturn in spot market and NYMEX futures prices, it appears that natural gas prices will not stay at current historically low levels. With the continued reduction in gas production, the steady increase in industrial and power generation demand, and the coming winter heating season, prices should continue to increase into the first quarter of 2021. Weather is also the great equalizer in this industry. A heavy winter season could quickly turn around spot prices and futures contracts and put more wells into production. Lastly, the COVID-19 pandemic and its sustained impact on U.S. businesses is a wild card that we need to keep an eye on.

However, if 2020 has taught us anything, it is to expect the unexpected. And then to expect it again. 

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